Applying for a home loan? Here are 8 ways to increase your chances

A couple signing a contract.
Here's how to up the chances of getting a home loan. (Photo: Getty)

If you already own property, last week’s Reserve Bank of Australia rate cut will be welcome news.

But the lower interest rate is also good news for home buyer hopefuls who are hoping to get a foot in the property market.

And with lending requirements set to loosen, obtaining a mortgage should come easier, according to

“There have been some positive signs for potential mortgage holders coming about, especially as we begin to see housing prices fall and interest rates cut,” said banking and financial expert Rod Attrill.

“However, consumers need to be aware of what they will need beyond a deposit, in order to obtain a mortgage right now.”

Approximately two in five home loan applications were declined in December alone last year, and banks will be looking more closely into borrowers’ financial habits, which – yes – will extend to your Uber Eats habit as well as your gambling.

According to the comparison website, these are the eight things you can do to increase the chances of getting a home loan this year:

1. Make sure your spending and saving patterns reflect your monthly repayments

Lenders will have greater confidence in you if you can show you can already afford your repayments before you even get the home loan, Attrill said.

“For instance, if your future monthly loan repayment will be around $4000 each month and you currently pay $2200 in rent, try to save an additional $1800 each month to demonstrate that you can pay your loan repayments once you have your mortgage and not be burdened by the debt.”

2. Review your discretionary spending

The bank will be combing through your statements – sometimes even months and months – to look at what it is you’re spending money on.

Mortgage brokers have already pointed out that your Uber Eats habit and your gambling habit alike will set you back.

“If you’re someone who has regular, high discretionary spending balances – such as a high level of ‘buy now pay later’ retail purchases, entertainment spending, and frequent restaurant transactions – you could be jeopardising your chances of getting a home loan if you don’t have the cash flow to support it,” said Attrill.

“At least six months before you apply for a home loan, do a budget check up and see if you can reduce your spending to only what’s necessary, such as household bills.”

3. Show a good pattern of spending

Hand in hand with the previous point, lenders will show more trust in you if you have a safety net of funds in case things go south.

“Regular deposits into your savings account shows a bank that you have financial stability and can maintain payments for a prolonged period,” Attrill noted.

“By saving beyond your deposit amount, it will demonstrate that you still have money to cover ‘life admin’ and low discretionary spending expenses.”

4. Reduce your debts by reducing your credit card limit

If your limit is high, or you’re not even meeting it, bring it down to a more modest amount.

“When banks review your debt during the application process, your credit card limit amount is factored in as a debt.

“For example, a credit card with a $10,000 limit and a $0 balance will still be seen as a $10,000 debt,” said Attrill.

5. Don’t lock yourself to a Big Four bank

With the big banks’ reputations still recovering from the Banking Royal Commission, smaller lenders are vying to prove themselves as better alternatives for customers than the Big Four.

“Smaller lenders such as start-ups, fintechs and neobanks often compete harder to get business and their competitive rates are recognised.

“As a result, they may provide home loan options that bigger banks don’t – such as longer loan terms, lower ongoing fees and lower interest rates.”

6. Consolidate your debt

Having multiple debts may affect your ability to pay back home loans and – understandably – make lenders wary of approving your application, the finance and banking expert said.

“If you have two or more credit cards, consider consolidating them by transferring their balances to a card with a lower interest rate. If you have multiple personal loans, consider grouping these together into a single personal loan too.”

7. Be realistic about the property you want

The property downturn seems to have lost steam, so it’s important to be sure you are realistic about the property price and your chances of getting a home loan.

“Sit down and review your finances with an accountant to analyse how much you will be able to really afford on your property each month, without putting your household under financial stress.”

8. Compare lenders and find the one that fits you best

You don’t settle on the first house you inspect, so don’t just settle with any home loan product: take the time to compare lenders and shop around, Attrill advised.

Comparison websites can help you compare home loan features such as interest rates, refinancing options, and reduced fees.

“Things borrowers should compare include whether an offset account will be right for your financial situation, the types of rates you would like and how competitive these are, and how you can make extra repayments through the loan you decide on.”

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